Wall Street Folly

• Bank of America to Pay for Merrill Backstop, Faces SEC Trial
• SEC Gets Tougher With Bank of America
• Amaranth Advisors Seeks at Least $350 Million From Touradji
• F.D.I.C. May Borrow Funds From Banks
• Fed to Miss Review Deadline
• AIG banks that Hank gets it out of the tank
• Gender bender at RBC
• Venezuela says to pay $5 bln oil service debts Read the rest of this entry »

Tags: AIG, Amaranth, Bank of America, Deutsche Bank, Discrimination, FDIC, Fed, Hedge funds, high yield bonds, Merrill Lynch, Oil, RBC, Real Estate, retail, SEC

He says opportunities abound in distressed debt, especially in the debt of casinos…

Tags: Avenue Capital, Avenue Investments, bankruptcies, Bankruptcy, bonds, credit markets, Distressed, Distressed investing, Hedge funds, high yield bonds, Marc Lasry

• Asian Hedge-Fund Assets Fell to $71 Billion in 2008
• Junk Funds Dabble in Best of the Worst
• New York Lottery Shuns Treasuries in Bid for Riskier Investment
• Law firm to freeze London staff salaries

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Tags: Hedge funds, high yield bonds, Legal

Evidence that the debt market still is really tough: Harley-Davidson issued $600 million senior unsecured notes with a whopping 15% coupon and Warren Buffett's Berkshire Hathaway is scarfing up $300 million of them.  The other half of the note issue is being purchased by Davis Selected Advisers LP, which is Harley's largest stockholder.

Berkshire Agrees to Buy $300 Million of Harley Debt – Bloomberg

Tags: high yield bonds

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Tags: Hedge funds, high yield bonds, Microsoft, Private equity

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Tags: Carlyle, Credit Crunch, Distressed, Hedge funds, high yield bonds, LBO / MBO, Ramius

We’ve gotten emails asking where we’ve been in the past couple of days since posting has been light.  Yes, we’ve been AWOL.  Given the choice to watch the market continue to crap out or to go to the Value Investing Conference to listen to the likes of Bill Ackman and Carl Icahn, we actually donned a suit and chose the latter.  Mea culpa. 

It was an interesting conference indeed.  A lot of glum faces, a lot of nervous jokes about the state of the market and comparisons to the crash in ‘87, just about universal complaining about the misguided short selling ban (at least among those we spoke to, although maybe that’s a function of the company we keep), but there was also a sense of optimism, that maybe all of the moves in the past week or so might actually start to take hold.  And people are also talking about the many opportunities they’re seeing in stocks as well as the astronomically huge yields on some of the high yield bonds out there.  After a two year period where we’ve been extremely bearish, we’re even starting to become a bit more optimistic.  We don’t think that the market has bottomed yet, but we’re more likely to nibble. 

Tags: Bill Ackman, Carl Icahn, Conferences, high yield bonds

The hits just keep on coming: One by one, big revenue streams that the major
investment banking firms have enjoyed are drying up.  The latest: the junk
bond business.  Underwriting fees have dropped dramatically. 
According to the NY Post:

Underwriting volume this year for high-yield securities, known widely on Wall Street as junk debt, has sunk at firms such as Merrill Lynch, Citigroup, Lehman Brothers and JPMorgan Chase, adding more salt to the wounds already inflicted by massive losses on souring mortgage securities.

According to Thomson Reuters, junk-debt issuance in the US is down 64 percent this year, with investment banks having issued $35 billion so far this year.

That compares with a whopping $98 billion in issuance this time last year. In Europe, junk-debt issuance is off 84 percent so far this year.

JP Morgan stands at the head of the league tables, having underwritten around
$80 billion so far thisyear, down a whopping 68% from last year.

A
Junk Debt Funk – NY Post

Tags: Citigroup, high yield bonds, JPM Chase, Lehman Brothers, Merrill Lynch

The high yield market is having a horrible year so far, and the pain isn’t expected to stop soon.  While its bad news for high yield investors, it’s music to a distressed investor’s ear, as it means there’s gonna be opportunities galore as the default rate climbs….

High-yield, high-risk bonds are off to
their worst start ever, and the biggest investors say there’s no recovery in
sight.

Junk bonds have fallen an average 3.9
percent this year, losing about $35 billion, according to data from Merrill
Lynch & Co. indexes. Some funds managed by John Hancock Advisers LLC,
OppenheimerFunds Inc. and Fidelity Investments are down more than 7 percent,
showing that even the largest investors were caught off guard by the collapse.

“The moves have been absolutely vicious,”
said Arthur Calavritinos, whose $1.2 billion John Hancock High Yield Fund has
lost about 9.8 percent since December. The Boston-based manager said it’s the
worst market since he started in finance in 1985.

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Tags: Distressed, Hedge funds, high yield bonds, Mutual Funds

Highly leveraged after their MBO, Outback Steakhouse’s co-founder Tim Gannon talks about business on Fox Business’ "Happy Hour".   

Tags: high yield bonds, LBO / MBO, Restaurants

Warren Buffett went on a high yield shopping trip last week, swallowing $2 Billion TXU Corp Bonds in two issues.  Berkshire Hathaway bought $1.1 billion of the 10.25% bonds @ 95 and $1 billion of 10.5% PIKs @ 93…..

Warren Buffett put $2 billion of Berkshire
Hathaway’s cash to work at the end of last week when the company purchased
high-yielding bonds issued by Dallas-based power producer TXU Corp., according
to a person familiar with the deal.

TXU was bought earlier this year in a
landmark $45 billion leveraged buyout led by Kohlberg Kravis Roberts. As with
many LBOs carried out in buoyant markets, banks agreed to make large so-called
bridge loans to help finance the deal, but they got stuck with those loans when
demand dried up for LBO-related debt. TXU can now use the proceeds from the bond
sale, whose total size was $3.9 billion, to help pay down the bridge loans. The
bonds were issued through a subsidiary.

Buffett’s purchase will be welcomed by the
banks that made the bridge loans because, since the credit crunch started in the
summer, they’ve had to take large writedowns on LBO debt on their balance sheet.
Citigroup (Charts, Fortune 500), Credit Suisse, Goldman Sachs (Charts, Fortune
500), JP Morgan Chase (Charts, Fortune 500) and Lehman Brothers (Charts, Fortune
500) all participated in the debt financing of the TXU buyout, which originally
included $11.25 billion of bridge loans.

Buffett’s Berkshire buys $2B in TXU bonds – Fortune

Tags: bonds, high yield bonds

Distressed credit investors, aka vultures, have been patiently sitting on the sidelines with piles of cash, waiting ever hopefully for the high yield market to crack.   With their worst monthly perfomance since July  2002, junk bonds sunk around 3.9% in the month of July on increased subprime and LBO risks.  While many seem to think that there’s more downside, the vultures are beginning to lick their chops…

This month’s rout wiped about $31 billion
from the face value of junk bonds and erased the debt’s gains from earlier this
year, index data compiled by Merrill Lynch & Co. show. The bonds have lost
about 1 percent so far in 2007.

Demand for speculative-grade debt has waned
as delinquencies on subprime mortgages backing securities surged to a 10-year
high. Investors have also refused to buy at least $33 billion of high-yield
bonds and loans for takeovers, shunning the debt in part because investment
banks have promised to sell about $300 billion more for LBOs including those of
First Data Corp. and TXU Corp.

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Tags: high yield bonds

Everyone knew that someone would get stuck holding the bag in the overheated LBO frenzy, and it sounds like even though bankers bragged that the market seemed to have virtually limitless demand, that time is now.  Goldman, JP Morgan (and we’d venture to guess others) are sitting on $11 billion of loans that they can’t move and they may get burned in the game of loan hot potato:

The banks have had to dig into their own pockets to finance parts of at least five leveraged buyouts over the past month because of the worst bear market in high-yield debt in more than two years, data compiled by Bloomberg show.

Bankers, who just a few months ago boasted that demand for high-yield assets was so great that they would have no problem raising debt for a $100 billion
LBO, are now paying for their overconfidence. The cost of tying up their own capital may curb earnings and stem the flood of
LBOs, which generated a record $8.4 billion in fees during the first half of 2007, according to Brad Hintz, the former chief financial officer at New York-based Lehman Brothers Holdings Inc.

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Tags: Distressed, Goldman Sachs, high yield bonds, JPM Chase, LBO / MBO

Bullish Citigroup is ’still dancing’ to the beat of the buy-out boom Bankers warn of emerging market bond bubble The Junkyard Dogs Investors In Some Funds

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Tags: Emerging Markets, high yield bonds

UBS says eyes takeovers in new U.S. growth push UBS Assents to Rohner, `Ordinary Guy’ Whose Guild Cleans Creek Barclays looks to exit sub-prime lending as FSA sounds alarm After Junk-Bond Swoon, Is It Time to Buy — or Wait?

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Tags: Barclays, bonds, high yield bonds

Doubts suface over strategy at Lazard London attracts top 14 European hedge funds Unsinkable junk Paying The Piper – CEO’s Drilled By Angry IRS

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Tags: Bruce Wasserstein, Distressed, Hedge funds, high yield bonds, Lazard

• Bad Loans Pit Vranos Against Cayne as Hedge Funds Outbid Street
• The Rise of the House of Lehman: Chapter II
• LBO debt may price high but demand likely strong

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Tags: Bear Stearns, Hedge funds, high yield bonds, Lehman Brothers

• CNBC Calls In a Judge
• Risky Business: Growth Of ‘Covenant-Lite’ Debt
• Quadrangle says to buy "Maxim" publisher Dennis

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Tags: CNBC, Distressed, high yield bonds, LBO / MBO

• LBOs Attack Finance Company Bondholders; SLM, CIT Debt Unravels
• Credit-Default Swaps Spur Fastest Derivatives Growth in 9 Years
• Junk tag on nearly half corporate bond firms

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Tags: bonds, Derivatives, high yield bonds, LBO / MBO